Protesters besiege parliament before Greek vote

Thousands of demonstrators gather in front of the parliament during a rally against austerity economic measures and corruption in Athens' Syntagma (Constitution) square June 21, 2011.

Reuters/Yiorgos Karahalis

ATHENS More than 20,000 chanting protesters besieged the Greek parliament on Tuesday before Prime Minister George Papandreou's embattled government faced a confidence vote crucial to avoiding a sovereign default.

In the biggest protest in Syntagma square for several days, the protesters chanted slogans against the politicians, shone hundreds of green laser lights at the building and into the eyes of riot police outside and pushed their hands forward in a traditional insult.

Papandreou's government, reshuffled to stiffen resolve behind a new austerity programme, is expected to survive the confidence vote but must rapidly pass two more tests -- enacting the austerity plan and the laws needed to implement it -- to win a new bailout and avert the euro zone's first sovereign default.

The vote follows a European ultimatum requiring the debt-choked Mediterranean state implement a new five-year package of deeply unpopular reforms in two weeks or miss out on a 12-billion euro aid tranche and plunge into bankruptcy.

European Commission President Manuel Barroso piled on the pressure, saying that Greece faced a "moment of truth" and needed to show it was genuinely committed to the reforms.

"No-one can be helped against their will," Barroso said in Brussels, adding that backing from the political opposition -- which has so far rejected the package and called for elections -- was important for success.

Acting IMF chief John Lipsky sent a similar message, saying international lenders were willing to help peripheral euro zone economies as long as they tried to carry out reforms.

He said the Greek fiscal system was broken but could be fixed with the right political will.

PROTESTS INCREASE

As the Greek parliament debated the confidence motion demonstrators stepped up their protests in the square, where hundreds have camped for weeks to show their opposition to more austerity, which has deepened the worst recession for 37 years.

"I believe we should go bankrupt and get over with it. These measures are slowly killing us," said 22-year-old student Efi Koloverou. "We want competent people to take over."

Julietta, a public sector worker who declined to give her full name, said: "We want them all to get out, to go home."

Inside parliament the opposition poured similar disdain on the government. "This is not a programme to salvage the economy, it's a programme for pillage before bankruptcy," said Alexis Tsipras, head of the small opposition Left Coalition.

Finance Minister Evangelos Venizelos, in an attempt to answer a key grievance of protesters, told parliament the government's top priority would be to build a fairer tax system.

A new opinion poll showed only 20 per cent of those questioned would vote for Papandreou's PASOK party if an election was held now.

Papandreou stifled dissent within the party last week by replacing some unpopular government figures with critics of the plan. Now, with 155 of the chamber's 300 seats, the party is expected to win the confidence motion in a vote due around 2100 GMT, but which could slip into the early hours of Wednesday.

Assuming it survives the vote, the government must hammer through the five-year package of 28 billion euro ($39.84 billion) in tax hikes and spending cuts by June 28.

It must then push through laws implementing the reforms -- potentially more difficult as it will tackle individual privatisations, tax measures and spending cuts -- in time for an extraordinary meeting of euro zone finance ministers on July 3.

The cabinet will meet on Wednesday afternoon to approve a draft bill implementing the measures, officials said.

"Tonight is just the beginning of what is still a long and protracted process," said Gavin Friend, a strategist at National Australia Bank. "There are still a lot of hoops to jump through."

GOVERNMENT EXPECTED TO WIN VOTE

Pundits say it is very unlikely the cabinet will fail to muster all its parliamentarians to pass the confidence vote, as this would lead to political chaos and early elections which PASOK would likely lose.

It would also push the country even closer to default, escalating the risk of a disastrous destabilisation of the global financial system.

International markets were wary ahead of the vote, and traders said there were still fears Papandreou would fail but there was increasing optimism he would pass the first hurdle.

Greek bank shares gained more than 6.0 percent and 10-year Greek bonds rose. The euro and European shares [.EU] rose, but currency and equity traders said there was little momentum behind the rally.

"The view is the Greek confidence vote is a done deal," a London trader said.

Having already missed targets agreed in its first, year-old bailout, Athens needs the reforms if it wants to receive the next tranche of those funds and secure a second bailout worth an estimated 120 billion euros.

The new mid-term plan envisions raising 50 billion euros by selling off state firms and includes 6.5 billion in 2011 fiscal consolidation, almost doubling existing measures that have helped extend a deep recession into its third year.

Most analysts remain sceptical that Greece will be able to reduce its vast sovereign debt pile of 340 billion euros, or more than 30,000 euros per head of its 11.3 million population, even if it passes the reforms.

Inspectors from the International Monetary Fund and European Union arrived on Tuesday to examine a request by newly appointed Finance Minister Venizelos for changes to the mid-term plan. Greece's government has said the lenders' inspectors would discuss changes "at a technical level".

Euro zone officials have told Reuters the plan for the new bailout, meant to extend Greece's year-old 110-billion-euro deal and fund it into late 2014, would feature up to 60 billion euros of fresh official loans, 30 billion euros from the private sector and 30 billion euros from privatisations.

(Additional reporting by Renee Maltezou; Editing by Peter Graff)

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